It turns out that the world doesn’t end when you declare bankruptcy — and it is possible to recover.

But it will take some time and a commitment.

One way to start rebuilding your credit is by getting a credit card. Don’t panic — just getting a credit card after bankruptcy does not mean more debt. In fact, we’re going to help you find the right card that will help you build your financial future, if that’s indeed the right course for you.

A Guide to Getting a Credit Card After Bankruptcy

If you’re committed to rebuilding your credit after bankruptcy, you may be wondering if getting a credit card is the way to go — after all, it has the word “credit” right there in the name.

And it’s true that credit cards can help. Lenders report your on-time payments to the credit bureaus, keeping a credit card for years adds to your credit history, and having a low balance compared to your credit limit improves your credit utilization ratio — all of which contributes to rebuilding your credit score.

But if you fear credit cards like a financial boogeyman — and somewhat rightfully so, considering that by the end of 2018, Americans had $870 billion in credit card debt — this guide will help you understand if and when to get a credit card after bankruptcy.

Should I Even Get a Credit Card?

If you’re asking yourself whether you should get a credit card after bankruptcy, you might want to consider why you’re asking yourself that question.

Your answer could help you decide whether a credit card is right for you, according to Certified Financial Planner Lauren Anastasio, a wealth advisor at SoFi, a personal finance company

“Many individuals may face bankruptcy for reasons other than just not having responsible habits — very frequently it may be someone who went through a messy divorce or they had overwhelming medical expenses,” she said. “And for those types of situations, it’s very easy to justify leveraging a credit card in order to help rebuild your credit.”

Pro Tip

Even if you file a successful bankruptcy case, some debts will not be we wiped out, including student loan debt, child support, alimony and most tax debts.

That was the case for Penny Hoarder Community member Karen Bush, from Toledo, Ohio. When she declared bankruptcy in 1998, the source of her debts were mostly expenses associated with her cancer treatment, she said.

“I went through chemotherapy 10 years before that, and over the years little odds and ends and medical bills just kept piling up,” she said. “The credit cards [I had] were department store credit cards — when I filed the bankruptcy, I think one of them only had $100 on it, so it was almost all medical.”

However, if the reason for your original debt was regularly living beyond your means or overspending, learning from your mistakes should be a crucial step before you apply for that credit card.

“That would be a scenario where we would really want to explore other options — especially if they don’t trust themselves,” Anastasio said. “A big factor is that self reflection: Do I feel my circumstances have changed? Do I feel like my behaviors have changed?”

How Long After Bankruptcy Can I Get a Credit Card?

If you declared bankruptcy last week, it’s unlikely you’ll be getting a credit card this week.

At a minimum, you’ll have to wait 90 days after filing for bankruptcy to apply for a card, according to Anastasio, but there’s a big time difference depending on whether you file for Chapter 7 or Chapter 13 bankruptcy:

Chapter 7 (aka liquidation bankruptcy): This is for individuals who can prove they don’t have the income or means to pay off debts.

For those filing Chapter 7 bankruptcy, after liquidating your assets (which may take three to six months), you’ll then need to wait the 90 days before applying for a credit card.

Chapter 13 (aka wage-earner bankruptcy): This is for people with an income that makes them ineligible for Chapter 7. Those who file Chapter 13 will work with a trustee to restructure and reorganize their debts and pay it back over three to five years, during which time debtors are not allowed to take on any additional debt.

“You might file in 2019, but it might not be until 2022 or 2024 that the Chapter 13 would actually be discharged,” Anastasio said. “So in that situation, it’s going to be 90 days plus that three to five years that you would be going through the process.”

Pro Tip

One alternative to credit cards is a credit builder loan (usually under $1,000). Make monthly loan payments into a locked savings account, then receive the loan amount back when it’s paid off.

But once you’re eligible to apply, expect to hear from a lot of credit card companies eager to attract new customers.

“As soon as my bankruptcy was final…. I started getting offers in the mail,” Bush said.

What to Look for In a Credit Card After Bankruptcy

Tina Russell/The Penny Hoarder

Think you’re ready for a credit card but not sure what to look for? Here are the four essential elements of a credit card to consider post-bankruptcy:

1. Type of Credit Card

Traditional Credit Card

Traditional credit cards — with all those nice perks like travel miles and rewards — are probably not in your immediate future. Those types of cards typically require a higher credit score than the one you’ll bring to the table post-bankruptcy.

But if you consistently prove your credit worthiness after bankruptcy, you may be able to qualify for one within a couple of years.

Secured Credit Card

You can apply for a secured credit card — and you’ll probably receive more offers for this type — the same way you would for a traditional credit card.

If you’re approved, you’ll be required to deposit cash upfront — typically anywhere from $50 to $300 — into an account with the lender, who’ll hold the money and extend a matching line of credit.

After you prove you can consistently make full payments on time every month, the lender may convert your secured card into a traditional credit card.

Although you may receive many offers, you should double check that the offer is for a secured credit card rather than a prepaid debit card.

“[A prepaid debit card] is great for usage, but is not going to be remotely helpful in rebuilding credit,” said Anastasio. “Make sure that it is actually a credit card or a secured card that is in fact reporting to the credit bureaus.”

Authorized User

If you have a close friend or family member who’s willing, they could help by adding you as an authorized user to their credit card — assuming they’ve had their credit card account for more than 10 years and have a positive payment history.

And if you don’t trust yourself — or they have concerns — you don’t even need to get the card. The owner of the card can ask their credit card company to add you as an authorized user without you actually receiving a card. Your credit score will simply benefit by piggybacking on their credit history.

“If they just add your name to that account, then after 30 to 60 days for your credit report to update, there could be a very significant boost in score,” Anastasio said.

2. Interest Rate

With a less-than-rockstar credit score, you should expect any credit card to come with high interest rates — like a minimum of 24%.

But ideally, the skyhigh rate shouldn’t scare you since you won’t be paying it.

“The expectation should absolutely be that they’re going to be paying the balance off in full and not carrying a balance that would be subject to that interest rate,” Anastasio said. And if that’s not the case, “I would tell them not to take out the card.”

However, even if you are concerned about the interest rate and you ability to pay in the future, you have the ability to seek out lower rates once you’ve established your credit worthiness — which could take less time than you think, according to Bush.

The first cards she said she received came with interest rates as high as 26%. But by managing her finances responsibly, she was able to get lower interest rates on more than just credit cards.

“My first car, when I bought it, that was like 18%,” she said “My second car, which was two years later, I ended up with like a 1.9%.

“The companies do watch what you’re doing and they reward you accordingly, by the lower interest rates and higher limits.”

3. Credit limit

Here’s the thing about credit limits: You want it high enough so that there’s room on the card for a purchase without wrecking your credit usage ratio. But if it’s so high that you’re tempted to splurge on unnecessary expenses, you could be setting yourself up for failure.

Anastasio’s advice? Just say “low.”

“If you go to apply for a new card, and they’re offering you a $5,000 credit limit and that makes you nervous… then there’s nothing wrong with asking, ‘Can you lower my credit limit? I’m far more comfortable with a credit limit of $1,000 or $500,’” she said. “It’s one way to start to control the potential for overspending.”

For Bush, starting with a smaller credit limit allowed her to work her way up in a responsible way.

“[My first cards] were all low limit/high interest, and I just babied them… it was hard, but I did it and it did pay off,” she said. “They would increase my limit every few months.”

4. Annual fees

If there’s one thing to avoid — even if it means waiting to get that credit card — it’s a card that demands you to sign a contract or pay upfront fees.

“There are both secured cards and credit cards for people who are trying to rebuild their credit that will not charge those fees” Anastasio said.

Beware of Scams

No matter who you choose if and when you decide to apply for a credit card, you want someone who’s reliable. Unfortunately, there are a lot of companies who know that people emerging from bankruptcy may be eager for an easy or quick fix to their credit.

“When someone is in a position that they are able to start rebuilding their credit, there are a lot of predatory lenders out there who market to people that have struggled with their credit,” she said. “The last thing I want is for someone to be enticed by an offer that they see or get involved with a company that there’s very little information about.”

If you go to apply for a new card, and they’re offering you a $5,000 credit limit and that makes you nervous… then there’s nothing wrong with asking, ‘Can you lower my credit limit?’

If you receive a great offer from an institution you don’t recognize, do your homework before you sign anything.

“If you are getting offers from an organization you’ve never heard of, at the very least, please do your research,” said Anastasio, who recommended sticking with well-known financial institutions like Capital One or CitiBank for your first card.

“Check for them on the better business bureau, look for online reviews — unbiased online reviews, ideally — before handing over all your personal information.”

How Using a Credit Card Can Help You After a Bankruptcy

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With everything you have to consider in regards to credit cards, is it worth the bother?

If Bush’s experience is any indication, the answer is a resounding yes.

After years of slowly building her credit and paying off the balance each month, she watched her credit score hit 850 in 2006.

“That was a real proud moment for me, having started out with all of these medical bills and bankruptcy and what have you,” she said.